Accounting terms that every
business owner should know.

1. Accounts
Receivable

Accounts receivable includes money
owed by customers to another company or individual as payment for
goods and/or services. It is considered an asset on a company’s
balance sheet, because there is an understanding that the clients
are legally obligated to pay this amount.

2. Accruals

This is a list of expenses that
have been incurred but are not yet paid, or a list of sales that
have been completed but not yet billed. Accruals relate to items
that will hit your books imminently, either in the positive or
negative, but haven’t yet, normally due to the time it takes to
complete accounting processes.

3. Accrual
Basis Accounting

The accrual accounting method
allows for some flexibility when expenses and income are recognized.
In this method, companies report when income is earned and when
expenses are incurred. There are rules that dictate when income is
and isn't recognized for the reporting period, as well as best
practices for dealing with bad debt expenses.

4. Assets

Assets are everything that a
company owns. In most cases, accounting assets are tangible assets,
such as equipment, property, land, cash and tools. But intangible
assets, such as stock, copyrights, patents and trademarks, can also
fall under this category.

5. Bad Debt
Expense

This is an entry on a company’s
income statement that tracks non-collectible accounts receivable
(i.e. "bad debt") during a specific period of time.

6. Balance
Sheet

A balance sheet is an overview of a
company’s financial status at a specific, including assets, liabilities and
equity.

7. Capital

Commonly referred to as the amount
of money a company has to invest or spend on necessary items for the
business, capital is money that can be accessed, not including
company assets or liabilities. It is often referred to as "working
capital."

8. Cash Basis
Accounting

Cash basis accounting is a
straightforward accounting method that is particularly useful for
small or new businesses. Revenues and expenditures are recorded when
payments are received and sent. It is especially valuable for
companies that don’t maintain inventories.

9.
Depreciation

Defined as the decrease of an
item’s value over time due to use, depreciation is especially
important for tax purposes, as larger pieces of equipment that
directly impact the company’s ability to make money can be written
off on tax returns based on their depreciation. These are items that
are used for more than a year.

10. Dividends

Dividends are company earnings that
are distributed on a regular basis to company shareholders. Dividend
amounts or percentages are typically decided by a corporation's
board of directors and can be issued as cash, shares of stock or
other property.

11. Equity

Equity is the amount of money that
has been invested in the company by its owners. If the company is
small with only a handful of owners, this can also be referred to as
"owner’s equity." If the company has many different owners, or if
the company’s ownership has been parsed out via stock options,
equity can also refer to ownership collectively held by
shareholders.

12. Expenses

There
are typically four types of expenses: fixed, variable, accrued and
operational.

13. Fixed
Expense

Fixed expenses stay consistent from
month-to-month, year-to-year. This typically includes expenses like
salaries, rent and so forth. These costs are not affected by
fluctuations in sales, production or the market.

14. Variable
Expense

Variable expenses are tied to the
company’s production. These costs can go up or down based on
increases and decreases in production or sales.

15. Accrued
Expense

Accrued expenses are single
accounting expenses that are being reported but haven't yet been
paid.

16.
Operational Expense

Operational expenses are costs that
are necessary for a company to conduct business.

17. Fiscal
Year

A fiscal year is a period of time
that a company uses for accounting purposes and in preparing
financial statements. The fiscal year can coincide with the calendar
year; however, it can also be different, such as October to
September or July to June. Fiscal-year start and end dates are
normally determined by the company and may depend on how long it
will take to close out the books for the year and prepare all
financial statements for federal and state tax submittals.

18.
Forecasting

The process of using a company’s
historical financial data to predict future business trends,
forecasting is typically used by organizations to best estimate
budgets for an upcoming period of time. This often includes supply
and demand figures, sales records and expenses.

19. General
Ledger

This is the complete recording of a
company’s financial transactions over the lifetime of the
organization.

20. Journal

Journals can also be referred to as
accounts. This is where transactions are recorded as they occur and
before

they are transferred to the official accounting record, such
as the general ledger.

21.
Liabilities

Liabilities are debts that a company is responsible to pay in the
short or long term.

22. Profit and
Loss Statement

Commonly referred to as "P&L," a
profit and loss statement is a report generated by the company or
its accountant

that lists earnings, expenses and net profits for a
given period of time.

23. Revenue

Revenue is the total amount of
money collected for goods or services sold before any expenses are
subtracted. It also includes any credits or discounts for returned
merchandise.

24. Trial
Balance

Trial balance is an exercise used
to confirm final figures before generating financial statements. It
requires placing

debits and credits on a worksheet to ensure that
any current balances are correct.